]]>New to the Emerging Trends in Real Estate® 2015 survey published by ULI and PwC, American respondents weighed in on the importance of the U.S. federal government to the real estate industry. For respondents who rated federal actions at least moderately important to the industry, the survey offered a comment box in which to indicate the federal actions that are the most important. Comments poured forth, ranging from short nouns—“taxes” and “regulations” and so on—to short essays on the government and the economy. In total, survey respondents mentioned nearly 1,000 federal actions.

Tax policies outdistanced all other federal actions, and most respondents simply stated “taxes” without elaboration. With Republicans in control of both chambers of the new U.S. Congress, comprehensive tax reform is bandied about as an area for bipartisan progress. Speaker of the House John Boehner (R-Ohio) identified comprehensive tax reform as the first point in his five-point vision for the new Congress in 2015–2016. Few Emerging Trends respondents, however, said they thought comprehensive tax reform is likely to happen in 2015.

Specific tax policies mentioned as important to the real estate industry include taxation of capital gains—especially with respect to carried interest—followed by, in order of number of mentions, the Foreign Investment in Real Property Tax Act (FIRPTA), taxation of internet commerce, income taxes, corporate taxes, and rules governing 1031 exchanges. Also called a like-kind exchange, the process allows real estate investors to defer taxes on capital gains if they invest the proceeds in a similar property, as defined by the U.S. Internal Revenue Service.

FIRPTA taxes foreign investors on their gains from the disposition of real property interests; proposed reforms target pension funds and real estate investment trusts. Reform proponents, including the White House and a bipartisan group of 40 senators in the recently concluded 113th Congress, have argued that attracting foreign investment to real estate development and infrastructure projects would help stimulate the economy and create jobs.

Regulations

Concerns about regulations also made a strong showing in the survey. Banking and finance regulations were most frequently cited, followed by general concern about unspecified “additional,” “excessive,” or “stifling” regulations. Environmental regulations came in a close third. Statements about environmental regulations in general outnumbered concerns about specific environmental policies. For those who listed specific environmental issues, most cited the importance of new stormwater and wetland regulations under the Clean Water Act. Only a handful of respondents listed federal action on climate change as important for the real estate industry in 2015.

Budget and Fiscal Policies

Of the respondents mentioning federal budget and fiscal policies, a large majority cited concerns about deficits and debt. According to the Congressional Budget Office, fiscal year 2014’s budget deficit of $486 billion was $195 billion less than 2013’s deficit. Revenues were up 9 percent over 2013’s, and outlays (spending) were up only 1 percent, helping to close the gap. The trillion-dollar deficits of the recession are long gone. As a percentage of gross domestic product (GDP), deficits have been on a five-year downward slide, and 2014’s deficit—representing 2.8 percent of GDP—was slightly below the nation’s 40-year average.

Leadership

Gridlock was the term used most frequently by respondents who commented on what they viewed as a lack of leadership in the federal government.

Federal leadership influences the economy, many believe, explaining that “the paralysis of leadership can negatively influence the decision-making process at the consumer level” and that “unpredictability does not make for a secure investment environment,” to cite some of the comments submitted by survey respondents.

High-stakes political showdowns earned scorn and frustration from respondents. “Fiscal cliff and similar standoffs erode investor confidence,” warned one respondent. Another wrote: “Do not shut down the government . . . it is bad for business.” Or, as another respondent summed it up, “Bottom line to all of this is JUST LEAD, PLEASE!”

Top Policy Areas

Looking beyond the general importance of taxation and regulation, close watch of the Board of Governors of the Federal Reserve, and worries about budgets and leadership, the other federal policy areas that received more than 25 mentions include, in order of frequency: banking and finance regulations, housing policy, environmental regulations, infrastructure investment, capital gains/carried-interest taxation, economic and employment policies, immigration, and health care regulations, including the Affordable Care Act.

For those mentioning housing, reforms related to the future of Fannie Mae, Freddie Mac, and the Federal Housing Administration ranked high on the list. When combined with the mentions of the mortgage interest tax deduction, policies and programs related to homeowner­ship made up the majority of references to housing policies. Mentions of the low-income housing tax credit and support for U.S. Department of Housing and Urban Development funding, however, numbered twice as many as of the mortgage interest tax deduction alone.

The future of Fannie Mae and Freddie Mac, the secondary mortgage market entities collectively known as the government-sponsored enterprises (GSEs), is uncertain. After falling into federal receivership during the Great Recession, they have played—and are playing—a crucial role in the recovery of the mortgage finance system. Although agreement is widespread that the federal government cannot continue to guarantee mortgages in the long term, the closest thing to a bipartisan proposal in the 113th Congress struggled in the Senate Banking Committee and was not passed. GSE reform seems unlikely in 2015; and at the end of 2014, the Federal Housing Finance Agency, which oversees Fannie and Freddie, announced provisions to broaden the availability of mortgages through new rules allowing more mortgages to be written using low downpayments.

Increased investment in infrastructure is something that Washington observers have pegged as possible for the 114th Congress. Infrastructure is traditionally a bipartisan pursuit, and the 113th Congress succeeded in passing the Water Resources Reform and Development Act and in funding investments in ports, flood management, and water infrastructure, with overwhelming majorities on the final bill. Funding for highways, transit, aviation, and Amtrak all require congressional attention in 2015, but if the past is predictive, coming to an agreement on raising the revenue to pay for identified programs will be a high hurdle.

With the Obama administration introducing dramatic new immigration policies and the U.S. Supreme Court taking up a case challenging key provisions related to subsidies in the Affordable Care Act, uncertainty and turmoil in these final two policy areas are also likely to continue well into 2015.

Action in the waning days of the 113th Congress resulted in some stability for 2015. Tense but ultimately successful bipartisan negotiations funded most of the government for fiscal year 2015, which runs through September 30. Funding for domestic programs remains flat; modest increases go to international priorities. The one exception is the U.S. Department of Homeland Security.

Its funding expires on February 27—a move sought by Republicans to keep the pressure on immigration policy in early 2015.

Despite the dismally low approval rating that most Americans have been giving both Congress and the White House, federal actions—or the lack thereof—still reverberate throughout the country, including the real estate industry.

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]]>http://urbanland.uli.org/capital-markets/taxes-lead-list-federal-policies-affect-u-s-real-estate-industry/feed/0American Demography 2030: Bursting with Diversity, yet a Baby Busthttp://urbanland.uli.org/economy-markets-trends/american-demography-bursting-diversity-yet-baby-bust/
http://urbanland.uli.org/economy-markets-trends/american-demography-bursting-diversity-yet-baby-bust/#commentsThu, 15 Jan 2015 20:07:32 +0000http://urbanland.uli.org/?p=26765The United States is undergoing a “pivotal period of demographic change” that will be as important to the 21st century as the baby boom was to the 20th century, according to William H. Frey, demographer for the Brookings Institution and author of Diversity Explosion: How New Racial Demographics Are Remaking America.

]]>The United States is undergoing a “pivotal period of demographic change” that will be as important to the 21st century as the baby boom was to the 20th century, according to William H. Frey, demographer for the Brookings Institution and author of Diversity Explosion: How New Racial Demographics Are Remaking America.

Projections by the U.S. Census Bureau, released in December 2014, show population growth of 38 million between 2015 and 2030, with another 30 million added between 2030 and 2045. The country, however, is in the midst of a postrecession baby bust. According to the National Center for Health Statistics, the 2013 birth rate was at a record low, calling these growth projections into question.

But the faces of those in America’s younger generations look substantially different from those of the country’s elders. Today, there is no majority race for children under five. Multiracial marriage is climbing and, according to Frey, has reached one out of seven marriages. In addition, the census bureau’s projections show that the white, non-Hispanic population will start to decline in absolute terms in the next ten years.

Frey is the first to point out that the United States “is lucky to have this trend” of a growing population, in c ontrast with other countries with shrinking or aging workforces, but he is equally emphatic when he concludes that “the future well-being of seniors and the nation as a whole depends on the ability of today’s youth to succeed in tomorrow’s labor force.”

Commenting on the Diversity Explosion during a December event at the Brookings Institution, Ronald Brownstein, author and political journalist, is less optimistic. He sees the country in a worsening “cultural generation gap” divided into “the brown and the gray.” He worries that for much of America, the diversity explosion is “just something that is happening on TV.” More than 100 percent of the growth in the workforce between now and 2030 (and beyond) will come from today’s racial minorities, he observes.

Immigration also will contribute to America’s changing demographic landscape, but Frey’s numbers show that “the diversity explosion is going to happen regardless of what happens with immigration.” Simple demographic rules apply: aging populations shrink; young populations grow. The age profile of the white population in the United States is similar to the aging and shrinking populations of Europe and Japan. The natural increase that will keep the country growing comes, for the most part, from the country’s relatively youthful Hispanic populations.

The diversity explosion is geographic as well as demographic. The old story of racial minorities concentrated in large cities is no longer the case. The burgeoning Hispanic populations have dispersed. Frey found 222 metropolitan areas—large, medium, and small—where Hispanic populations are either more concentrated or growing faster than the national average; in 44 metropolitan areas both applied.

Asian populations, a group Frey describes as “the newest minority surge,” while still concentrated on America’s coasts, are also finding their way to southern and heartland regions like Atlanta, Phoenix, and Indianapolis. For black Americans, however, regional reconcentration is the dominant trend. African Americans are returning to their roots in the South, flocking to Atlanta, Dallas, Houston, Miami, Washington, and Charlotte metropolitan areas.

Within these growing metropolitan regions, suburbs are attracting an increasingly diverse population. Hispanic population growth is fueling population increases in both cities and suburbs. African Americans, in what Frey calls “black flight,” are leaving cities for suburbs. Cities such as Chicago, New York, and Los Angeles are losing their black populations. Even in the southern regions attracting African Americans, they are more often than not heading for the suburbs. By the 2010 census, a majority of metropolitan Asians, Hispanics, and African Americans resided in suburbs.

Reproduction drives population growth; digging deeper into the census bureau’s methodology reveals who the bureau thinks will be producing the babies that will be America’s future growth. American-born groups “were below replacement in 2011” and only “foreign-born Hispanics and foreign-born non-Hispanic others are projected to have fertility levels that exceed replacement at any point” between now and 2060. The fuel that drives the engine of natural increase in the United States will be the life experiences and choices of women born in Latin America, the Caribbean, and Africa.

America’s baby bust has yet to hit bottom after the pre-recession high in births in 2007. Year-over-year declines continued in 2012 and 2013. Some of the bust is certainly reproduction delayed, as young adults take longer to believe in their economic security.

Improved contraceptive technologies and access to higher-quality health care will just as certainly affect the height of the rebound in number of births. The most recent numbers, covering a period from 2006 to 2010, show that 37 percent of births in the United States resulted from unintended pregnancies. In 2012, the American College of Obstetricians and Gynecologists issued an opinion that long-acting, reversible contraceptive methods should be “the first-line recommendations for all women and adolescents.” At the same time, the Affordable Care Act expanded access to preventive services, including contraception. A future where the vast majority of babies are planned seems within sight.

The built environment has always been the stage on which America’s complex racial dynamics play out. The built environment shapes people’s understanding of home, neighbor, customer, colleague, teammate, employee, citizen, taxpayer, mentor, and friend.

Business models that primarily attract tenants, customers, or workers who are predominantly white and under 35 will be facing shrinking markets. Government policies affecting immigration, education, workforce development, and the support of young families will also come to the fore.

In addition, the real estate industry should be mindful that census bureau categories do not necessarily reflect how people see themselves, nor how they will see themselves in the future. One hundred years ago, the census bureau listed “Italian” as a race. The bureau first added “two or more races” for the count in 2000.

In a country where everyone is a racial “minority” and where families themselves are becoming more diverse, even the language used to describe identity will evolve. For Frey, he sees hope in an old term: America as a “melting pot.” Demographics may be destiny, but whether America is a “melting pot,” a “tossed salad,” or some other new fusion food metaphor will be up to the choices of its people.

Sarah Jo Peterson is senior director, policy, for the Urban Land Institute.

Cities around the world continue to struggle with the danger and damage of flooding. A 2013 World Bank study estimates that global flood losses average about $6 billion per year. Population and economic growth in vulnerable regions are predicted to increase annual flood losses to $52 billion by 2050. Add in climate change, and annual losses could top $1 trillion. The rising sea levels and increasingly intense rainfalls predicted by climate-change scientists will make the struggle to deal with flood risk more difficult—and more pressing.

“Responsible real estate development and investment requires understanding more than just the risk of flooding. It requires estimating the severity of the flooding and the damage it is likely to cause,” says John McIlwain, ULI senior fellow and a chair of the 2013 ULI Advisory Services panel that produced the report After Sandy: Advancing Strategies for Long-Term Resilience and Adaptability. Understanding flood risk, moreover, means understanding flood-risk mapping.

During Hurricane Sandy in 2012, the area flooded in New York City’s Brooklyn and Queens boroughs was almost double the area defined by official maps as special flood hazard areas (SFHAs). In the city as a whole, the water rose above the flood elevations indicated on risk maps in more than half the areas that were flooded. The challenge ahead for flood-risk management through mapping is to figure out the factors contributing to the discrepancy between mapped risk areas and damage—the part played by insufficient data and models and the part played by the effects of climate change—while acknowledging that the discrepancy could also be the consequence of the societal gamble inherent in any flood-risk-mapping effort.

Better data are becoming more widely and publicly available. Remote sensing via light detection and ranging (LIDAR) can create precise three-dimensional maps of shorelines and land elevations, greatly increasing the accuracy of flood-risk mapping. In the United States, standards require maps to be updated on a five-year cycle, and a 2014 report by the U.S. Government Accountability Office (GAO) notes that significant strides have been made to modernize flood maps in recent years. Federal appropriations for this effort, however, are declining: from $325 million in 2009, the map modernization project has declined to only $208 million appropriated by Congress in 2013.

Climate change, however, threatens to undo the increased certainty promised by better data. Flood-risk mapping has traditionally been backward looking, built on the assumption that the future will look much like the past. In the United States, laws in 2012 and 2014 began the process of trying to incorporate climate science into the federal flood-risk maps that underpin the flood insurance program and floodplain management. In the European Union, the most recent directive requires that member states regularly update their flood-risk maps, incorporating new information about climate change.

Not only is the science behind future flood-risk mapping difficult and complex, but it also is likely to be in tension with politics. Official studies in the neighboring states of Virginia and North Carolina illustrate the challenges ahead: whereas officials in Virginia are looking at scenarios 100 years into the future and analyzing the impact of sea levels that rise up to five feet (1.5 m), North Carolina officials confined their study to 30 years, which limited the sea-level increase to a less-formidable eight inches (20 cm).

Understanding Flood Risk

The map, from the U.S. Global Change Research Program, depicts flood hazard areas in 2100 based on regional scenarios of sea-level rise developed by the New York Panel on Climate Change. It was created using the Sea Level Rise Tool for Sandy Recovery (www.globalchange.gov/browse/sea-level-rise-tool-sandy-recovery). Additional mapping tools examining American coastal regions are available from Digital Coast (www.csc.noaa.gov/digitalcoast/), a project of NOAA’s Coastal Services Center. ULI is a member of the Digital Coast Partnership.

When managing floods, government policy starts by deciding which flood risks to map.

For example, the European Union requires member states to map the 1 percent annual flood risk—areas that have a 1 percent chance of flooding in a given year. The U.K. Environment Agency maps areas of 1 percent annual risk for river flooding, but uses a less risk-tolerant level, 0.5 percent (one out of 200), for areas subject to flooding by the sea. The United Kingdom defines extreme flooding as flooding with a one out of 1,000 chance (0.1 percent) of occurring within a year. Maps of these flood-risk areas are available to property owners and insurance companies.

The Netherlands, where millions of people reside below sea level, builds flood defenses to standards as stringent as limiting the risk of failure in any given year to one in 10,000 (0.01 percent).

The United States uses the 1 percent annual risk as the base for its National Flood Insurance Program (NFIP) and defines extreme flooding as 0.2 percent (one out of 500) annual risk. Flood insurance studies provided to local communities also indicate areas of 10 percent and 2 percent annual risks. The government’s accompanying floodplain management training gives examples of how to use the maps for land use planning, infrastructure development, and facility siting: the 10 percent flood risk is useful for locating septic systems, the 2 percent risk can inform decisions on bridges and culverts, and the 0.2 percent indication provides guidance on areas to avoid when locating critical facilities such as hospitals.

The different percentages of annual risk translate to different lines of probability on a map. According to established conventions, the lines indicate the probability, over the course of one year, of normally dry land being flooded at least once.

The land between the river or shore and the mapped risk line has the designated percentage or greater chance of flooding each year.

(The 10 percent, 2 percent, 1 percent, and 0.2 percent probabilities correspond, respectively, to ten-year, 50-year, 100-year, and 500-year flood risks. The tradition of referring to flood probabilities in terms of a “number-year” has led to significant confusion. The proper interpretation of this naming convention is not that a 100-year flood occurs once every 100 years, but that the chances are one in 100 that a flood will happen each year.)

As flood-risk mapping gets more sophisticated, the range of the flooded area is accompanied by flood elevation—the projected height of the floodwaters. Flood-risk analysis may also include the expected speed of the water flow.

Studies of flood elevations and velocity also inform building codes, providing guidance on how high to elevate the lowest floor and how strong support structures or flood-proofing need to be.

Flood-risk mapping for insurance and land use planning is based on historical and modeled averages. But as Maria Honeycutt, coastal hazard specialist for the U.S. National Oceanic and Atmospheric Administration (NOAA), explains, “storms are all different. No one storm is going to produce the 1 percent flood-risk area. The area that will get flooded is different every time.” Moreover, she continues, “floodplains change; the map is not static. In reality, nothing about this is static.”

In addition, other types of flood mapping may be relevant to sound development and investment decisions.

Doug Marcy, a colleague of Honeycutt’s at NOAA, specializes in building data-based tools designed to translate the science into forms useful for making decisions. He points to two other types of useful flood mapping: evacuation planning and localized flooding.

“Evacuation planning uses worst-case-scenario planning,” he explains. “It goes way beyond the 1 percent risk.” These mapping efforts are not based on the likelihood of the monster hurricane heading to shore or the levee being in danger of breaching, but what to do when such rare events are actually happening.

For more localized and less serious flooding, including urban flooding, weather forecasters may work with city officials to map these major and minor events in order to issue local warnings, close roads, or analyze the impact of the high water on businesses or public facilities.

Mapping and Insurance in the United States

The shore of Lake Pontchartrain near New Orleans with a destroyed house in the background.

The federal government took the lead on flood-risk mapping in the United States as part of the NFIP, which Congress launched in 1968 after decades of flood-related disasters that burdened the federal treasury, compounded by a lack of viable alternatives in the private insurance market. The Federal Emergency Management Agency (FEMA) administers the program in partnership with nearly 90 private insurance companies that sell the policies.

Insurance policies are only available for purchase in communities that agree to participate in the NFIP’s floodplain management program, which sets minimum standards for land use planning, subdivision ordinances, and building codes.

For the federal government, the NFIP was—and continues to be—seen as a way to engage property owners and communities in risk-reduction activities, as well as to create a mechanism to share financial risk. Flood-risk mapping underpins the entire program: it informs the insurance rates, the communities identified as being at risk, and floodplain management standards.

The NFIP defines an SFHA as “the area covered by floodwaters of the base flood”—the event having a “1 percent chance of being equaled or exceeded in any given year.” The height of the water during the 1 percent flood is the base flood elevation.

More than 21,000 communities, or about 90 percent of at-risk communities, participate in the NFIP. Homeowners, renters, commercial property owners, and businesses in participating communities can buy flood insurance through the NFIP, with premiums based on risk categories. Purchasing insurance is voluntary, though property owners in SFHAs must have flood insurance in order to be compliant with the rules for mortgage from a federally regulated or federally insured lender.

Participating communities must adopt and enforce flood-management regulations. Requirements include administering a development permitting process that regulates the siting and construction of buildings and activities such as filling, dredging, paving, or grading. In general, new development must not increase the flood hazard of other properties, and new buildings must be protected from the base flood, as must buildings that have been “substantially improved,” including repairs after significant damage. New or improved infrastructure must also be designed to avoid or minimize flood damage.

Through its Community Rating System, the NFIP provides incentives for communities to go beyond the required minimum standards. Individuals are eligible for insurance discounts if their community engages in activities chosen from a menu that includes more restrictive flood-risk mapping, floodplains preserved as open space, high-risk areas zoned for low-density development only, or relocation of flood-prone buildings to higher ground. A 2014 GAO report found, however, that only about 1,200 communities participate in this incentive program.

FEMA calls the map that defines an SFHA and its flood elevations a “flood insurance rate map.” In the program’s early decades, flood-risk maps indicated only flood areas, not elevations. Fees on policies, as well as other federal funding, have paid for rounds of map modernization, including the transition from paper to digital maps. Incorporation of flood elevations and wave heights for coastal areas has been an ongoing priority, according to the GAO. FEMA also updates maps using data drawn from other agencies and requires owners of large development projects to submit flood-elevation studies where they are not yet available.

Updating a rate map is a public process. FEMA consults the community throughout the process, including holding community coordination meetings, both to educate the community about revisions and because FEMA recognizes that local knowledge of building and landscape changes is crucial to accurate mapping. Property owners have the right to appeal new designations to FEMA. Although the map updates can lead to property owners being assigned higher and lower risks—and therefore higher or lower insurance premiums—owners deemed at higher risk have the greatest incentive to appeal. Potentially at stake for property owners are thousands of dollars per year in insurance premiums or the need to do expensive building upgrades. The FEMA appeals process requires that appeals are to be decided based only on scientific or technical information about flood risks; the economic consequences of a higher-risk designation are not among the decision-making criteria.

In the end, it is important to remember that there is nothing magically safe about being outside the line indicating 1 percent annual risk. According to FEMA’s FloodSmart.gov website, “People outside of mapped high-risk flood areas file nearly 25 percent of all NFIP flood insurance claims.”

With climate change, as sea-level rises accelerate and heavy rainfall events become more frequent, the lines on the maps defining high-risk areas march inland, while the height of the floodwater in high-risk areas climbs higher. But how far inland? And how high will the water be? And how soon will it happen?

Bottom line: that official flood-risk map, which today indicates that a development project or investment is just outside a high-risk area or elevated just high enough to avoid damage, is likely to say something very different in the not-so-distant future.

ULI members tour the High Line in New York City as part of the Fall Meeting.

Just outside the Javits Center in New York City, attendees of the 2014 ULI Fall Meeting walked the recently opened final leg of the High Line, which wraps like a veranda around the massive Hudson Yards development site. Inside Javits, speakers at a concurrent session on the creative reuse of aging infrastructure added three case studies to the growing list of success stories proving that development opportunities can still be found in the spaces created by transportation infrastructure.

For Chicago’s MetraMarket, the private sector transformed rail infrastructure dating back to the early 20th century. New residents totaling 50,000 and 110,000 rail commuters from Chicago’s northern and western suburbs formed a ready base of customers for retail development in the city’s burgeoning West Loop district. But, as Michael Tobin, managing director, CBRE/U.S. Equities Reality, declared, even when the real estate fundamentals are strong, projects that repurpose infrastructure are still “labors of love.”

Metra, Chicago’s commuter rail agency, sought to make its Ogilvie Transportation Center a more pleasant experience for commuters. After a decade of negotiations, CBRE/U.S. Equities Reality entered into a 90-year ground lease with Metra for the unused areas under the elevated tracks. The blond-brick walls, which encapsulated the unused areas, added period character to the site but deadened the streets. CBRE/U.S. Equities Reality’s solution was a French Market, Chicago’s only indoor market of local food vendors, restaurants, and soft goods. An enormous public success, according to Tobin, the French Market has become a local and regional attraction while also activating the streets.

The Erie Canal put Buffalo on the map in the 19th century; today, waterfront investments at Canalside are bringing in 1 million visitors a year. The state of New York led public investments to re-create the canal in its historic location, repurposed as four public spaces featuring parks, promenades, water recreation, and lighting installations on the towering grain elevators. The varied entertainment options include the popular play The Story of Buffalo, staged in a venue created out of the foundations of buildings.

Successful place making, as best practices now show, requires thoughtful and frequent programming. For Benjamin Donsky, project manager for Biederman Redevelopment Ventures Corporation, potential visitors need to know that there is “always something going down at Canalside.” Ramping up from zero events in 2009, this year Canalside will host 1,000 events, most conducted as partnerships with third parties.

The public investments and place making in Canalside seem to be working. The private sector has arrived; two of eight adjacent development sites sold at fair market value and now contain a hotel and a mixed-use complex featuring ice hockey rinks and retail.

Historic character is offered by old railroads and canals, but freeways? Freeway parks also have burst onto the scene; studies by the Trust for Public Land find dozens that turn noisy air rights into green space amenities. Citing as a precedent 2014 ULI Urban Open Space Award Winner Klyde Warren Park in Dallas, Michael LoGrande of the city of Los Angeles’s department of planning unveiled an ambitious plan to cap a one-mile (1.6 km) stretch of the Hollywood Freeway. Running through downtown, the freeway split a historic neighborhood. Today, the area is transit rich and of surprisingly high density, but green space poor.

The cost of a “Hollywood Park” built in freeway air rights crosses over into the billion-dollar range, but LoGrande reasoned that the most appropriate comparison is the cost of buying this much land in the densest heart of the city. Viewed this way, the cost is no less daunting, but the value becomes more apparent. Private donations have already materialized to cover the environmental studies, and federal, state, and local governments have expressed interest in the concept. The High Line and Chicago’s Millennium Park offer lessons on how to leverage value capture, although LoGrande acknowledged that balancing development opportunities with the needs of the existing, vulnerable neighborhoods will be very important.

Developments that compete only on the newness of the buildings will always be beaten by the next new building, Tobin reminded the audience. He continued, “You have to create a reason why the public wants to be there to create long-term success.” The spaces created by infrastructure—obsolete and still in use—offer development opportunities of lasting value. But they demand infusing the creative impulse throughout, to take advantage of their unique character and locational advantages while maintaining a strong commitment to place making.

]]>http://urbanland.uli.org/infrastructure-transit/three-creative-reuses-aging-infrastructure/feed/0ULI Endorses Urban Street Design Guide from NACTOhttp://urbanland.uli.org/news/uli-endorses-urban-street-design-guide-national-association-city-transportation-officials/
http://urbanland.uli.org/news/uli-endorses-urban-street-design-guide-national-association-city-transportation-officials/#commentsThu, 21 Aug 2014 21:09:31 +0000http://urbanland.uli.org/?p=25857The Urban Land Institute has endorsed the Urban Street Design Guide, published last year by the National Association of City Transportation Officials. The guide embraces the unique and complex challenge of designing urban streets, aiming to make streets safe for people whether they are walking, biking, using transit, or driving.

The guide’s emphasis on making alternative transportation modes accessible and safe reflects a trend toward making cities more people-friendly and less car-focused, says Patrick L. Phillips, ULI chief executive officer. “Great cities start with great streets,” he said in announcing the endorsement. “This upends long-held notions about how people get around in cities, and offers practical, well-thought-out recommendations on how to make streets more inviting. ULI is pleased to endorse the publication as a useful tool in the creation of cities that are economically prosperous, environmentally conscious, and highly livable.”

The guide, available at nacto.org, provides a detailed set of design strategies for creating healthy urban streets, including language on lane widths, stormwater management, sidewalks, and complex intersections. Based on best practices from cities across the United States, it will be updated to reflect new and improved practices as they develop.

ULI’s endorsement of the guide is based on the recommendations of a ULI review committee composed of several members who serve on the Institute’s product councils, a network of the industry’s foremost land use and urban development experts. “The guide exemplifies excellence by being clear, coherent, and comprehensive, while promoting state-of-the-art street design and urban design,” says committee member James Moore, a member of ULI’s Urban Revitalization Council and a senior vice president of HDR in Tampa, Florida. “The guide is an incredible resource for ULI members and public officials.”

Other review committee members were Wes Guckert, president, the Traffic Group Inc., Baltimore, and member of the Public Development and Infrastructure Council; Jill Hatton, director of the University of Wisconsin Foundation Board; and member of the Urban Development and Mixed-Use Council; John Hempelmann, chairman, Cairncross and Hempelmann, Seattle, and member of the Transit-Oriented Development Council; Scott Mingonet, landscape architect, Kimley-Horn and Associates, Charlotte, North Carolina, and member of the Public-Private Partnership Council; Brad Power, director of economic development, Longmont, Colorado, and member of the Public-Private Partnership Council; and George Stanziale Jr., senior vice president and director of the Design Studio, Stewart Inc., Raleigh, North Carolina, and member of the Urban Development and Mixed-Use Council.

The review committee concluded that NACTO’s process for developing the guide, which drew on successful models that can be replicated, is consistent with ULI’s tradition of knowledge sharing and highlighting best practices. Committee members were also impressed with NACTO’s inclusion of interim solutions to improve pedestrian and cycling conditions while more permanent changes are designed. “Through the guide, NACTO is promoting a flexible, locally driven approach to street design policy,” Moore says.

The committee noted that by outlining alternatives to driving, the guide supports many of the goals of ULI’s Building Healthy Places Initiative, which highlights the role of well-planned urban design and development in creating communities that encourage healthy living. In addition, the guide’s recognition of well-designed streets as an economic asset is in accordance with ULI’s view of the factors that contribute to community prosperity and sustainability.

An illustration of an interim public plaza. (Credit: NACTO)

The committee recommended that ULI’s endorsement be used to raise awareness of the guide among ULI’s members, including tailored programming for the Institute’s district council network, which reaches nearly 29,000 members in more than 50 markets in the United States, and its product council network, which includes more than 2,000 members. ULI’s endorsement is the latest in a series of endorsements for the guide, including several from local and state departments of transportation, including the California Department of Transportation.

Gabe Klein, ULI senior visiting fellow and former head of the transportation departments for Chicago and Washington, D.C., endorsed the guide as commissioner of the Chicago Department of Transportation and continues to raise awareness of the publication as a member of NACTO’s strategic advisory board. “This design guide gives planners and engineers around the U.S. solid urban standards they can rely on, and which policy makers can count on for sustainable, safe, inviting, and therefore business- and people-friendly streets for current users and future generations,” Klein says.

A concert in the park at the restored Mission Creek waterfront in San Francisco, part of more than $700 million in public infrastructure financed through special assessments and TIF for the Mission Bay redevelopment project. (San Francisco Office of Community Investment and Infrastructure)

Tax increment financing (TIF) can be a powerful economic development tool. Under the right circumstances, TIF can generate enough funding to make a real difference. And with the right safeguards in place, TIF encourages government and the private sector to form a partnership based on each other’s strengths.

“Without TIF or other government programs, the only redevelopment will be for the rich, by the rich,” says Stephen B.Friedman, a consultant with decades of TIF experience in Illinois and Wisconsin and a member of ULI’s Public/Private Partnership Council. For neighborhoods in need, he continues, “TIF works because government looks the private sector in the eye and puts the public money where the private sector is also willing to put the private money. You have to have a meeting of the minds about what works for the community and for the developers.”

Built on a foundation of growing tax revenues, TIF is vulnerable to both national and local economic downturns. Indeed, as the Great Recession spread throughout the United States, TIF districts became weak at just the time they were needed most. Moreover, as local governments cut budgets to the bone, the revenue generated in TIF districts came under close examination. In states where both TIF and education spending depend heavily on revenue from property taxes, TIF’s impact on education became a frequent flashpoint for controversy.

“The recession caused the whole development finance industry to take a hard look at what they are doing,” says Toby Rittner, chief executive officer of the Council for Development Finance Agencies (CDFA). At one extreme,

California Governor Jerry Brown in 2011 ended TIF for redevelopment and ordered the special authorities that managed TIF revenues to close. But most cities and states shared the view of TIF held by Minnesota’s legislature, which expanded a diminished TIF program as part of a 2010 jobs bill.

The hard look produced changes. “We discovered that TIF has a lot of depth,” says Rittner. “Coupled with a comprehensive approach to economic development, it can be used for more than just infrastructure and traditional redevelopment activities, and it can leverage other financing tools.”

TIF originated in an act of policy creativity in California in 1952: federal dollars flowing to remedy what was then called urban blight required a local match. In the subsequent decades, every state in the United States except Arizona has experimented with TIF in one form or another—and then in another and another. As the federal dollars dried up in the 1970s and 1980s, TIF nourished redevelopment. TIF has been exported: pilot projects are underway in Scotland and ­England, with versions tailored to their tax regimes.

From the developer’s perspective, TIF is just one of many ways to partner with government to share the costs of development. From the government’s perspective, TIF’s distinctive feature is that it provides a means to access new tax revenues to support the creation of these same new revenues, and more. Public investment increases private property values, which increases property tax revenues. Those new revenues can be leveraged to pay for the improvements that attract the private investment, setting up a virtuous cycle of increasing development that pays for itself and increases the tax base.

In the United States, TIF is governed by state law, but implemented by municipal governments. Although this discussion refers to cities, TIF can also be implemented by county governments, economic development authorities, or other municipal governments.

The following hypothetical example illustrates the components of TIF.

River City’s economic development plan aims to transform the city’s vacant industrial waterfront into a mixed-use district of offices, retail space, and housing lining a linear waterfront park. River City designates a TIF district on the waterfront, with a duration of no more than 15 years. The property tax revenue generated by the district at the time of designation becomes the frozen base revenue. The base revenue continues to flow to government coffers as usual.

The “increment” is any property tax revenue generated above the frozen base. Provided there is a spark to stimulate it, the increment grows over time, generating funding to pay—directly or through borrowing—for public investments in the district. River City can create a spark by working with a private developer on a development proposal. The city issues bonds secured by the forecast increment—the increase in property tax revenue expected from the developer’s proposal—to pay for upfront development costs, whether borne by the developer, the government, or both. At the end of 15 years, the TIF district is dissolved and the increment returns to general tax revenues.

(Inspired by graphics from CDFA and Stephen Friedman.)

Diversity and Complexity

TIF interacts with tax regimes that differ by state. For revenue generation, TIF is most powerful in places with high property taxes. Because states with high property taxes often dedicate those revenues to education, TIF laws that allow access to the school district’s portion of the property tax increment can produce significant revenue. Although many states allow TIF to access retail sales taxes at a district level, sales taxes are relatively weak revenue generators.

Either the public or private sector can take the first step in initiating a TIF district. A community-driven TIF district “means the city is taking a proactive role and making policy decisions about priorities,” says Amanda Rhein, senior director for transit-oriented development at the Metropolitan Atlanta Rapid Transit Authority and a member of ULI’s Public/Private Partnership Council. A developer-driven TIF district, however, relieves the city of the need to court developers with an untested plan. A city’s policy culture may favor one approach, but many cities do both. Developers should expect development negotiations to be more intense if they are the ones initiating TIF discussions.

Today, depending on the state, TIF supports everything from expanding affordable housing to attracting manufacturers to industrial zones, including provisions for job training. In some states, TIF must be used solely for public projects, such as infrastructure; other states allow, and even encourage, TIF in support of private development costs, such as those for rehabilitating existing buildings or subsidizing the interest on loans for new construction.

TIF laws include what is known as a “but for” clause—a way of saying that private sector projects that would happen anyway, without support from the increment, are ineligible for the financing. Though a too-literal interpretation of the “but for” clause can unnecessarily restrict TIF’s economic development uses, “there has to be some way of assuring the public that the city is not just giving money away,” says Rachel Weber, TIF expert and associate professor of urban planning and policy at the University of Illinois at Chicago. “A city should be able to distinguish between ‘what is needed’ versus ‘what would be nice’ to fulfill its economic development goals.”

Cities have options on bearing investment risk. They may use the increment to secure bonds—especially useful for large, upfront development costs. They may also use what is called “pay-as-you-go” financing and expect the developer to secure the credit: the city participates by promising the developer a portion of the increment. Cities may also choose to fund, rather than finance, the endeavor, spending the accrued increment directly on the project.

Developers should not expect 100 percent of the increment to be available. Rittner advises cities to reserve some of the increment to pay administration expenses. Moreover, the amount of need—the financing gap for each project—typically dictates the portion of the increment awarded. In times of scarce private financing, the financing gap may be bigger than the city is able or willing to fill with TIF. Indeed, Rhein notes, “developers often cannot depend on TIF alone; they need to be creative about layering public sector programs—drawing on TIF, but also other tax credit and grant programs.”

Chicago

Shortly after Chicago Mayor Rahm Emanuel took office in 2011, he fulfilled a campaign promise by convening a TIF Reform Task Force. Advising on a program generating $500 million a year from 163 TIF districts comprising about 10 percent of the city’s property tax base and covering 30 percent of its land area, the task force focused on increasing transparency and accountability. Under Illinois law, over the 23-year life of a TIF district, as long as money is flowing into a district, the city can continue to initiate new projects, increasing the importance of an ongoing process for accountability. In addition to recommending aligning TIF with a multiyear economic development plan and capital budget, the task force advocated establishing metrics to monitor performance of the city’s TIF program.

Among the reforms, the city has inaugurated strategic reviews every five years and in July 2013 unveiled the public TIF Portal, a web mapping tool linked to each district and its associated projects. “The city is becoming smarter in how they give their money away and stricter in terms of financial audits and holding recipients accountable to their promises,” says Weber, a member of the task force. “The city has taken more of an investment mind-set to ensure they are not providing a huge windfall to the developer at the public’s expense.”

Political debate continues in Chicago, especially regarding education spending and whether TIF is still appropriate in the city’s central area, now in its second decade of strong development. “The city is a lot more reticent to do downtown projects,” Friedman observes. “The focus now is on the outer neighborhoods.” In addition, Emanuel in November 2013 issued an executive order requiring annual calculation of the “TIF surplus” that can be returned to the original taxing bodies, including Chicago Public Schools.

Atlanta

Atlanta’s TIF program, known as TAD (for tax allocation district) and run by Invest Atlanta, the city’s economic development authority, has also undergone changes. “The lull during the recession allowed us to reevaluate our program, use it to create jobs, and better align it with citywide economic development efforts,” says Rhein, who participated in Invest Atlanta’s strategic review in 2011.

Historically, Atlanta used TAD for gap financing, funding developers through grants that covered 5 to 15 percent of project costs via bonds backed by the increment. After the strategic review, Invest Atlanta expanded its project evaluation criteria to include job creation and business attraction. New types of projects include building retrofits, facade improvements, and streetscape enhancements. An energy efficiency grant program rewards participants in the federal government’s Better Buildings Challenge.

In Georgia, school districts and county governments join a city TAD at their discretion. School districts have opted to join half of Atlanta’s ten TADs. When school districts join, Rhein explains, “they negotiate something such as payments in lieu of taxes or a lump sum out of the bond issuance.”

In recent years, Atlanta has also begun using TAD funding for major infrastructure projects, such as the Atlanta BeltLine transit and economic development plan, and a downtown streetcar.

California

By terminating redevelopment authorities and their TIF powers, Brown sent a signal that the goal of compact, walkable development at infill locations—and needs such as affordable housing—will have to be met in new ways. Ongoing discussions throughout the state focus on how to replace what was lost with a comprehensive tool kit. ULI’s five district councils in California worked together on potential next steps, and in November 2013 released the report After Redevelopment: New Tools and Strategies to Promote Economic Development and Build Sustainable Communities.

“If California is going to continue to lead on sustainable development and meet the state’s growing needs for affordable housing and infrastructure investment, cities and counties require the authority, legal powers, and financing tools to encourage infill development,” explains Libby Seifel, head of the Seifel Consulting and a member of the ULI report’s working group. Although the governor recently announced support for expanding eligible projects in infrastructure financing districts (IFDs), which can use TIF, Seifel fears “that IFDs alone are too narrow and will not generate enough public investment unless leveraged with other funds. As the ULI report states, California needs a comprehensive set of tools to achieve the state’s environmental, housing, and economic goals.”

Best Practices

To get started on considering TIF, developers should learn the state’s TIF law and the city’s policy culture, and “understand the terms of the city’s boilerplate development agreement before initiating a request for participation,” advises Rhein.

Friedman advises developers to remember, as negotiations proceed, that TIF is “not an entitlement, it’s a gap filler. Be prepared for a complex set of negotiations, the expectation that you will open your business practices to scrutiny, and that a variety of public goals and values will be injected into your project.”

Because to foster a true public/private partnership, the CDFA recommends that the best practices of accountability, transparency, and due diligence apply equally to both partners. This is the best way to guarantee that TIF’s virtuous cycle is optimally achieved.

]]>http://urbanland.uli.org/economy-markets-trends/tax-increment-financing-tweaking-tif-21st-century/feed/6Dialogue: What’s Next for Incorporating Energy Efficiencyhttp://urbanland.uli.org/sustainability/dialogue-charging-toward-net-zero/
http://urbanland.uli.org/sustainability/dialogue-charging-toward-net-zero/#commentsFri, 30 May 2014 19:02:56 +0000http://urbanland.uli.org/?p=25528Industry leaders with experience in North America, Europe, and Asia share the latest on building energy efficiency.

This installation is a collection of 15 blue, 18- to 24-foot-tall flower-shaped sculptures with solar panels in the Mueller community’s retail center in Austin, Texas. (Thomas McConnell Photography)

Industry leaders with experience in North America, Europe, and Asia share the latest on building energy efficiency. What are you doing to promote energy efficiency? Add your responses below.

Sharing their experiences are David DeVos, vice president and global director of sustainability for Prudential Real Estate Investors; Jonathan F.P. Rose, president, and Michael Catalano, green initiatives project manager, of Jonathan Rose Companies; Philippa Gill, Tishman Speyer’s director of sustainability and operations systems across Europe; and Gregory J. Weaver, executive vice president of Catellus Development Corporation, who is based in Austin, Texas.

What innovative efforts do you have underway to make your buildings more energy efficient?

DeVos: Some of the most basic energy technologies often prove the most efficient. It may not sound innovative, but we rely on plenty of proven, low-risk opportunities, such as operational best practices, lighting, controls, and variable-frequency drives. For example, at a number of buildings we replaced pneumatic HVAC controls with digital controls. After less than a year, we reduced our energy consumption from 14.5 percent to more than 22 percent. Additionally, we have more control of the HVAC systems, which improves the tenant experience, resulting in fewer hot and cold calls. Tenants, management, and ownership all win.

Gill: The in-house technical and property management expertise within Tishman Speyer is the key to our ability to manage and reduce consumption across our operating portfolio. In order to support them in this critical work, we have embarked on a strategy to install smart meters across our portfolio to provide real-time consumption data. This provides additional insights on the ground, enabling us to combine experience with technology to deliver substantial emissions and costs savings.

Depending on the building, savings range between 3 and 30 percent. In this latter case, by combining on-the-ground expertise, focus, and a small capital investment, the property team achieved total consumption savings of over 30 percent within three years of purchasing the building.

Rose/Catalano: We pay the tenant energy bills at our Nevada Street property in Newark, New Jersey, a property owned by Jonathan Rose Companies in a joint venture with Goldman Sachs’s Urban Investment Fund. We have set a goal to reduce energy consumption by 20 percent. Ten percent of the reduction comes from hardware upgrades such as AC covers and Energy Star–certified refrigerators, and another 10 percent from residents taking action to reduce their individual consumption. Projected annual savings are roughly around $40,000–$50,000. We anticipate a 20 percent buildings carbon-footprint reduction as well.

Our residents are reducing their electricity consumption through a building-wide competition. The property is 306 units of seniors’ housing located in a 19-story master-metered building, so there is inherently a split incentive between owner and resident when it comes to utility consumption and conservation. Residents will receive monthly energy reports with unit and floor-by-floor comparison data. In addition, online access to their data creates a feedback loop, supported by monthly green educational sessions.

To address the energy consumption of the central heating system, we installed programmable thermostats in each apartment and upgraded the valves in the baseboard heat. This allowed us to reduce the horsepower and rpm speed on our hot-water circulator pumps, which alone will bring a $4,000 annual savings in electricity costs to the project.

The “SunFlowers” collect enough solar energy to light up the sculpture and provide excess energy back to the grid. (Thomas McConnell Photography)

Weaver: Mueller is a 700-acre [283 ha] mixed-use development on the former site of Austin’s municipal airport. Based on Austin Energy’s Green Building program rating projections, we estimate Mueller’s currently constructed offices, homes, and apartments save on average 15 million kilowatt-hours per year. In many cases, our focus has been on making sure the energy-efficient resources that are put into the buildings are done well and done often. This means, for example, adding energy-efficient windows with shade structures to reduce lighting costs while not increasing cooling costs, or adding LED lighting all over the community, even the parking garages and holiday lights.

Establishing an overall green community like Mueller inspires innovation. For instance, the new H-E-B grocery store at Mueller is now the greenest among the Texas-based chain’s 300-plus stores. To manage our hot Texas sun, the building’s iconic sloping roof is made from a ceramic coating that was used on the space shuttle, and shoppers enter through a Texas-sized vestibule with a single entrance/exit and a large shaded overhang. The chilled-water HVAC system pumps cool water into the flooring and refrigerated cases, which house 90 percent of all refrigerated items. A large collection of solar panels generate more than 200,000 kilowatt-hours per year.

Even public art incorporates innovative energy efficiency. SunFlowers is a collection of 15 blue, 18- to 24-foot-tall flower-shaped sculptures that serve as the gateway into the community’s power retail center. They also collect enough solar energy to light the sculptures at night and provide excess energy back to the grid.

What do you think the industry can do to continue moving the needle on energy efficiency?

Gill: Design buildings from the inside out, ensuring operational efficiency and impact are understood from the beginning of any project. This will ensure that efficiency measures are embedded in the project from the start. Density of occupation, moreover, is fundamentally important. Recent research is showing that more densely occupied buildings and cities offer the greatest potential for operational efficiency and value creation, as well as allowing greater emissions savings when combined with the right design features to ensure that these new, dense spaces remain attractive places to live and work.

Weaver: First and foremost, the industry needs to continue educating end users of the long-term cost savings associated with going green. Although costs continue to generally decline, there are still challenges convincing commercial occupants to pay the considerable upfront costs to install green and energy-efficient features.

Rose/Catalano: Industry leaders will need to focus more on the building envelope. Stable interior thermal comfort can be accomplished by constructing tighter, well-insulated envelopes and by supplying smaller, more energy-efficient HVAC solutions. This process should be guided by a full-building energy model that takes into account solar radiation and other thermal loads. Better building construction details is one of the first places to start as it does not necessarily have to cost more money, just a little more detail-oriented time. After construction is complete, a blower door test and thermal imaging can verify its performance as intended in design.

We also think that changing the attitudes and behavior of building staff and residents can reduce consumption by 10 percent. Savings are not only related to energy use, but also water use and waste production. Ultimately the goal is to reduce the bulk of the building’s basic loads and if possible move toward a renewable source of energy to handle at least a portion of energy consumption. If done right, this will make your building more resilient during power outages as well.

DeVos: To move the needle on energy efficiency, we need to start thinking about doing more, rather than simply being “less bad.” While reducing energy consumption is a necessary step, buildings can become a community asset if they produce more resources than needed to operate. Thinking through a more holistic, long-term approach to energy and real estate, whether with existing or new construction, can help to ensure all stakeholders win. We can do it, or the regulators will do it for us.

What does an energy-efficient building look like in five years?

Weaver: I think more buildings will go to 100 percent LED lighting in the not-so-distant future. I predict there will be much more and easier-to-use automation for lighting and temperature controls. I also think we’ll continue to see an increase in more daylight usage, with more energy-efficient windows plus more use of manmade and natural shade structures, especially in places like Austin and the fast-growing American Sunbelt.

Gill: Technological advances in energy monitoring and efficiency are developing at speed now. Within five years, most buildings will be “hooked up” and monitored in the way we are when we go to hospital. This will allow remote monitoring, management, and analysis in a way that we are only beginning to understand. Qualified professionals who understand what the machines are telling us, however, will remain paramount.

Rose/Catalano: In five years, many older buildings will have undergone some sort of energy efficiency upgrade, but many owners will not have invested in insulation and air tightness. This is where new policies and incentive programs, either through a refinance, grant, or tax rebate program, should focus their efforts to help building owners make deeper investments.

DeVos: In five years, energy-efficient buildings will need to include tenant participation. When the physical building reaches high levels of efficiency, tenant consumption increases as a percent of total building energy consumption. From plug-load management to smart devices (such as the Nest thermostat), more and more technology is being specifically designed for tenants to better control and understand their energy consumption. The U.S. Environmental Protection Agency’s proposed Tenant Star program for commercial tenants may be a harbinger of things to come.

What can public policy leaders do to support energy-efficient buildings and communities?

Gill: Clarity in government and regulatory frameworks is critical. This allows industry and manufacturers to design their processes and tools over the long term, enabling the industry to move forward coherently. Given the lengthy planning time scales for real estate and infrastructure projects, long-term policy and program consistency across government departments, as well as across parliamentary cycles, is important.

Rose/Catalano: PACE, PACE, PACE! We need Fannie Mae, Freddie Mac, and the U.S. Department of Housing and Urban Development to allow property-assessed clean energy [PACE] financing.We’d also like to see building codes amended to significantly increase the levels of airtight construction supported by measurement and verification and to further bump up the R-value on roofs and walls. Many of the public funding programs focus solely on mechanical upgrades, which leaves the major issue of envelope untouched.More retrofit funding needs to be specifically focused on building-envelope improvements.

Gill: More effective planning frameworks would help support the increasingly dense urban lives we live. And in order to support the de-carbonization of an increasingly urban planet, mass transit should be combined with better long-term integration of residential and commercial areas. The current funding schemes [in Europe], which are open to city and regional bodies to enable access to large-scale, regional renewable and public energy networks, have been a good start. They should be expanded upon and woven into longer-term policy planning.

DeVos: One great example of where a government is having a significant impact is in Singapore, an island city-state with limited natural resources that knows it is in its best interest (national security, resource availability, and employment) to green its buildings and operate them efficiently. By 2030, using energy efficiency/certification regulations and a suite of incentives, 80 percent of buildings in Singapore will be Building and Construction Authority [BCA] Green Mark certified. One study calculated BCA Green Mark–certified buildings saved 11.6 percent in operating costs and increased the building value by 2.3 percent. To date, more than 20 percent of Singapore’s building floor area has been BCA certified. Additionally, the move to green Singapore has evolved past energy efficiency to it becoming a green building innovation incubator creating thousands of new jobs.

Weaver: Mueller is a city of Austin project, so having access to the insights from Austin Energy—a municipally owned utility preeminent in green building—is a huge opportunity for us. Austin Energy has partnered with the University of Texas and others to establish the Pecan Street Research Institute, which is focused on developing and testing advanced technologies, business models, and customer behavior surrounding advanced energy management systems. The Mueller community is the pilot neighborhood for Pecan Street’s smart-grid demonstration research project, which has resulted in Mueller having one of the highest concentrations of residential rooftop solar panels in the country and one of the highest concentrations of electric vehicles in the world. By pooling resources, Pecan Street’s public and private partners have found creative ways to incentivize people to take a more responsible role in making their homes and offices more energy efficient.

DeVos: Historically, local jurisdictions have had control over buildings, from planning to building codes to building operations, and now energy reporting. A carrot-and-stick approach can create more energy-efficient buildings and communities.

]]>http://urbanland.uli.org/sustainability/dialogue-charging-toward-net-zero/feed/0The Canadian P3 Model: Will It Work in the United States?http://urbanland.uli.org/news/canadian-p3-model-will-work-united-states/
http://urbanland.uli.org/news/canadian-p3-model-will-work-united-states/#commentsMon, 21 Apr 2014 14:11:22 +0000http://urbanland.uli.org/?p=25304Despite his significant expertise with public/private partnerships (P3s) in the United States, Jay Hailey, an attorney at DLA Piper, found something new to share with attendees at the 2014 ULI Spring Meeting in Vancouver, British Columbia: the Canadian P3 model.

]]>Despite his significant expertise with public/private partnerships (P3s) in the United States, Jay Hailey, an attorney at DLA Piper, found something new to share with attendees at the 2014 ULI Spring Meeting in Vancouver, British Columbia: the Canadian P3 model. Americans tend to use public/private partnerships as an umbrella term that covers a range of relationships between the private and public sectors, Hailey acknowledged as he introduced the session. The Canadian P3 model, however, is a very specific way to build and manage infrastructure, including public buildings. Moreover, a fourth “P”—performance—drives the Canadian model.

Taking the best practices and lessons learned from public/private partnerships in the United Kingdom and Australia, Canada developed a model tailored to its needs and culture. Initiated in 2002, the Canadian P3 model now is the primary means for 20 percent of capital projects, delivering 206 projects worth $70 billion in the last ten years, including education and health care facilities. As experience with the model grew, so did the number of companies wanting in on the game. Today, seven to eight companies bid on projects, squeezing margins and benefiting taxpayers.

Mike Marasco, CEO of Plenary Concessions and formerly of Partnerships BC, the entity set up by the province of British Columbia to oversee public/private partnerships, explained the Canadian model’s fundamental components.

First is the emphasis on government ownership of public facilities, avoiding some of the critiques that can accompany the so-called privatization of highways, utilities, and government buildings. The government sponsor awards the chosen developer a license to design, build, finance, and maintain the public facility for 30 to 35 years. Depending on the circumstances, the license may also include operations. In return, the developer receives—upon delivery—monthly “availability” payments. Unlike rent, the availability payments are tied to performance criteria. Penalties are automatically deducted every time a performance measure is missed.

Bundling long-term maintenance, including performance criteria, with the more typical design, build, and finance arrangements optimizes the “whole of life” (or life cycle) costs of the building, because, according to Marasco, “if a hospital has to choose between bandages and maintenance, bandages are going to win. Maintenance is deferred, with costly implications for long-run costs.”

The Canadian P3 model affects more than just avoiding deferred maintenance. Experience shows that considering performance and maintenance costs upfront improves the design and construction of the building, making it more resilient to start out with.

The success of the Canadian model has sparked interest south of the border. For a new country, a new name—performance guaranteed facility (PGF)—that avoids confusion with American “public/private partnerships” and emphasizes what makes these projects tick.

The state of California used the Canadian P3 model for the Governor George Deukmejian Courthouse in Long Beach. Although U.S. states have used a similar model for a handful of highway projects, according to Jeffrey Fullerton, the Long Beach Courthouse is the first public building PGF, incorporating “the full monty” of the Canadian model. Fullerton illustrated how bundling maintenance and operations with design, build, and finance can affect decisions: the 35-year time frame made hard-surface flooring preferable over carpet and the primacy—through penalties—that the sponsor put on having all courtrooms “available” for all users led to building 19 elevators.

The partnership is structured so that the public sponsor—in this case, the state of California’s Administrative Office of the Courts—has, in Fullerton’s words, “one throat to choke.” The state office deals solely with a special-purpose entity—the Long Beach Judicial Partners—set up to manage the project and the long-term license. Long Beach Judicial Partners manages all the other partners, contractors, and financial advisers, including Fullerton’s firm, Edgemoor Infrastructure and Real Estate.

Importing the Canadian model for one-off deals falls short of taking full advantage of Canadian experience. The founders of the WCX: West Coast Infrastructure Exchange are modeling it after another Canadian innovation—centers of expertise such as Partnerships BC. A corporation wholly owned by the province of British Columbia, Partnerships BC plans, delivers, and provides oversight for major infrastructure projects, including public buildings. They provide stakeholder management and create templates, tools, and a knowledge bank. They ensure that the private sector has a knowledgeable counter-party for negotiations. The single entity, moreover, speeds the adoption of innovations and best practices across sectors: courthouse PGF projects can learn from innovations developed in wastewater PGFs and vice versa.

The governors of California, Oregon, and Washington joined with Partnerships BC to create a U.S.-based center of expertise, and with seed money from the Rockefeller Foundation, launched the WCX in 2013. According to Chris Taylor, the organization’s executive director, the exchange is positioning itself around two opportunities: to attract “the patient capital waiting to come in” to the U.S. infrastructure market and “to better manage life-cycle costs.”

WCX is now working with the states to develop additional pilot projects. Taylor pointed to Oregon’s new law, HB4111, establishing a Public Infrastructure Commission that will screen infrastructure projects “to decide if PGF is the way to go.” With organizations like WCX and Oregon’s Public Infrastructure Commission, “public officials can have faith that someone smart is on their side,” said Taylor.

Expertise is crucial to a process where deals that are successful—for both parties—depend on risk assessment and risk management over 30 to 35 years. In addition, noted Marasco, pursuit costs are high, making the Canadian model most useful for projects exceeding $100 million. This all, warned Fullerton, requires “a tough bit of math,” and Taylor emphasized that “PGF isn’t suitable to too much decentralization.” But with the Canadian lessons in front of them and centers of expertise at their sides, the speakers at the ULI 2014 Spring Meeting session concluded that U.S. states have much to gain from advancing and shaping Performance Guaranteed Facilities into the California model, the Texas model, or the New York model.

Bike racks outside of a local bike store at Via6 in Seattle, Washington.

Four developers working in Houston; London; Memphis and Nashville, Tennessee; and Seattle share their experiences with the market for walkable and bicycle-friendly development.

What are your experiences? Add them in the comment section below, and Urban Land will revisit lessons learned in a future article.

Russell (Rusty) Bloodworth is with Boyle Investment Company, active in Memphis and Nashville; Matt Griffin is managing partner at the Pine Street Group in Seattle; Nick Searl is a partner at Argent LLP in London; and Matthew Stovall is president of SD+A in Houston.

We hear a lot about growing demand for communities where people can safely walk and bike. How do you see this playing out in your markets?

Russell Bloodworth: There is a much greater understanding today in Nashville and Memphis that walkable communities are desirable. Part of the reason is the clear success of neighborhoods designed for the pedestrian. Recent attention to healthier lifestyles is part of the story, but I feel another important component is the existence of successful new communities built since 1980 that the market has come to appreciate.

Matt Griffin: Walkability is everything for us. A great apartment site has to be in a walkable neighborhood and near good mass transit. Our Via6, in Seattle, has a “walkability score” of 100 out of 100. Walkability is about more than being healthy; getting out of the car makes life simpler and better. But it’s also about economics. Amazon’s decision to locate in downtown Seattle was huge; they realized that walkable, vibrant urban neighborhoods help recruit talent.

Nick Searl: These issues are increasingly becoming more important to the thought process behind developments and communities—not only in London, but in the U.K.’s other cities, suburbs, and rural communities as well. There is a growing awareness that walking and cycling, whether for recreation or commuting, forms a vital part of a healthy lifestyle. London, in particular, is looking to discourage the use of private vehicles in the city. The new and improved cycle routes through the city, bicycle hire schemes, and the increased cycle parking at the main transport nodes are significant contributors to this effort. Although London is still early in the process, travel trends, the political will to do more, and a commitment to the necessary investments are undeniable.

Matthew Stovall: The communities in the Houston region whose home values have remained stable over the years have walking/biking trails and easy access to amenities like coffee shops, service retail, and restaurants, as well as safe access to schools, churches, and community centers. Houston’s inner city has seen a huge wave of young professionals, empty nesters, and families move into redeveloping communities that, through the help of Tax Increment Reinvestment Zones (TIRZs), have improved the pedestrian realm. For my houses in the inner city, I have buyers who work in the suburbs, but they would rather live closer to restaurants, parks, and culture.

How have you seen taking walking and biking into account helping a development project to succeed?

Bloodworth: We have found a strong correlation in Memphis and Nashville between pedestrian and bike amenities and demand. We are retrofitting some of our older projects to overcome hurdles to easy pedestrian and bike movement, and have gotten great traction in the market with our newer, more pedestrian-scaled developments. Our recent projects in the Nashville market—Meridian and Berry Farms—have doubled the absorption pace we expected, and a good part of the reason is that they both offer something the older developments didn’t offer. They are intentionally permeable and cater to the pedestrian above all.

Griffin: Our Via6 project combines walkability, good mass transit, and top-quality bicycle amenities. Our market niche is urban workers who don’t necessarily want to own a car. Via6 has been open a year and is 90 percent leased, six to nine months ahead of expectations. It has 654 apartments and 15,000 square feet of community-oriented retail, but only 430 parking stalls for cars. Bike amenities for residents include special entrances off the alley that connect to about 240 bike stalls and a bike wash with stands and tools for maintenance. For the community, a bike shop holds classes and lends bicycles for residents’ short-term use. For commuters, a bicycle club provides storage for 100 to 150 bikes, a drop-off service for maintenance, and locker rooms with showers. The club costs only $15 a month. The Velo Bike Shop and ViaBike Club make Via6 a bike-friendly hub for the neighborhood.

Searl: We are developing 8 million square feet of mixed use at King’s Cross in London: offices, residential, retail, university, school, and leisure facilities. Fundamental to the project is connecting into the fabric of the city and encouraging free flow for cyclists and pedestrians. For example, the main north–south route into the development prohibits private vehicles. Our experience shows that buildings are more marketable in genuinely sustainable places.

Stovall: Our projects have mainly been urban infill development in midtown and the Museum District of Houston. Most of the submarket is connected to downtown and the Texas Medical Center via the city grid. We recognize that Houstonians love their cars and don’t intend on giving them up. However, because parking is expensive and limited at many inner-city locations, we’re seeing more people walking and riding bikes over the past five years. Local residents and patrons are taking advantage of the bike-share program the city recently initiated. The sidewalks have improved so much that it’s common to see joggers running around the community. Not only does pedestrian and bicycle infrastructure make it easier to market, it’s imperative to have the infrastructure in place before development can really take off, particularly in the urban core

Do you see investors starting to consider pedestrian and bicycle access and safety?

Bloodworth: We are doing a major urban project with Northwestern Life Insurance Company in downtown Nashville called Capital View. Northwestern has been very tuned into the issues, partially from their experience in our Meridian project and other well-conceived projects nationwide. We may owe part of our participation to that fact.

Griffin: We developed the largest apartment project ever built in one phase in downtown Seattle. We picked the site because of the walkability and access to the Westlake Transit hub. We built Via6 with 100 percent equity. The investment community clearly wants to be in walkable, vibrant neighborhoods that attract the knowledge workers who allow Seattle to compete on a global scale.

Searl: Investors and funding institutions in the U.K. now have a general appreciation that reasonable expenditures on provisions for cycling, walking, and running add significant value and marketability to investments and reduce the risk of vacant space.

Do you do something different to market your projects’ bicycle and walking amenities?

Bloodworth: We help sponsor Walks for Cancer, etc., in our communities, but to date we have not done as much as we could have done and should have done. It is a great idea. We’ve got in place literally miles of connected trails along a three-mile stretch of one of our Memphis projects (Humphreys Center). The trails are heavily used; they’ve changed the perception of the project and the surrounding area. We need to take more advantage of the trails from a marketing point of view.

Griffin: We did a lot of marketing around the Velo Bike Shop and ViaBike Club; they became part of our identity. We advertised with the Cascade Bicycle Club. We teamed up with the Downtown Seattle Association and Commute Seattle during Bike to Work Month, which they hold every May. We took a high-visibility role in sponsoring activities, including offering the services of our bike mechanics. We want bicyclists coming into downtown to see us as a bicycling hub.

Searl: The whole London market is becoming more and more sophisticated in catering to cyclists, pedestrians, and runners. Developers compete by providing more cycle parking spaces than regulations require and providing locker, shower, and secure drying rooms on par with the quality found in a health club. They provide for bicycle maintenance and offer cycle safety training.

So much about walking and biking depends on what happens in the neighborhood or community; how can developers address these issues?

Bloodworth: The mayor of Memphis last year signed an executive ordering really pushing forward a complete-streets initiative stimulated in part by our local ULI district [council]. We also pushed for a $2.6 million HUD sustainability grant to create a plan for knitting together over 400 miles of trails and greenways in our region. That plan will be completed later in 2014. Getting the smaller municipalities and the larger ones on the same page is an effort that takes time, talent, and money. Until then, the “network” will remain fragmented. Our firm has given over six miles of greenways along our major tributaries to help accelerate the creation of a connected network, but getting the pieces tied together is still a difficulty.

Stovall: We make the connection between biking, walking, and parking for cars in our work in Houston. When we have a project with a high parking demand, we promote shared parking with nearby properties, in addition to bike parking. When the project has more casual establishments, such as a fitness center or casual restaurants, we’ll add more bike parking to help relieve vehicle parking pressures.

Griffin: As I often ask, “Have you ever been in a great city that wasn’t a great city to walk in?” The city of Seattle is doing a lot to support walking and biking, and, while not every block in downtown Seattle is great, most are. Developers need to continue to create great streets where people want to walk. That’s our responsibility.

Searl: Connectivity, accessibility, and safety for pedestrians and cyclists all need citywide initiatives to be successful. Developers should not assume someone else is going to do it. In the U.K., developers often make financial contributions to wider-scale initiatives that are then implemented by local authorities. Get involved!

]]>http://urbanland.uli.org/infrastructure-transit/dialogue-developers-responding-increased-demand-walking-cycling1/feed/8New Ideas for Walking and Biking in U.S. Transportation Programshttp://urbanland.uli.org/infrastructure-transit/new-ideas-walking-biking-u-s-transportation-programs/
http://urbanland.uli.org/infrastructure-transit/new-ideas-walking-biking-u-s-transportation-programs/#commentsFri, 28 Feb 2014 15:59:10 +0000http://urbanland.uli.org/?p=24997With the major U.S. federal transportation law, 2012’s MAP-21 (Moving Ahead for Progress in the 21st Century), expiring this October 1, activity is gearing up to decide what is next for the nation’s streets, highways, and transit systems. The biggest headache will be funding. Federal taxes on motor fuels are failing to generate enough revenue to maintain even current spending levels.

But not everything of significance comes with a billion-dollar price tag. A flurry of activity in late January and February introduced several low-cost, seemingly small initiatives that could have an outsized effect on U.S. communities. Moreover, all are designed to support communities as they reshape themselves to meet growing demand for healthy living and to increase transportation safety for all, including people walking and bicycling.

The Chicago Riverwalk initiative showcases how transformative and creative TIFIA projects can be. The city is building a continuous walkway along an additional six blocks of the Chicago River, connecting the lakefront to the center of downtown. In addition to expanding the pedestrian network, the project includes recreational amenities and retail space. Each block of riverfront will become its own place with a distinctive identity.

Working closely with the U.S. Department of Transportation, the city secured a $99 million TIFIA loan in only eight months, and “a project that usually would have taken 15 years, the city will be able to do in four,” says Gabe Klein, former Chicago transportation commissioner and currently a visiting fellow with the ULI Rose Center for Public Leadership. The city will use rent and user fees to pay back the loan, enabled in part by rebidding the tour boat access fees.

However, TIFIA’s $50 million project minimum excludes many worthwhile and financially feasible projects—mainly pedestrian and bicycle projects—simply because they do not need to be massive to achieve results. To address this gap, the New Opportunities bill would set aside $11 million of TIFIA funding for a two-year pilot project that encourages implementation of smaller projects by lowering the project minimum to $2 million. Twenty-five percent of the funds would be prioritized for projects in low-income communities.

New Opportunities would look to finance projects that complete pedestrian and bicycle networks or expand bike-sharing programs. Street redesign also would be eligible, and the bill specifically identifies the solutions featured in the National Association of City Transportation Officials’ Urban Street Design Guide.

Like TIFIA, New Opportunities would encourage public/private partnerships and local solutions to generate revenue. “This novel approach will add another tool in the toolbox for mayors, governors, and private investors to reinvigorate their communities and develop a strong, vibrant middle class,” says Sires.

Safe Streets Act

On February 7, Senators Mark Begich (D-AK) and Brian Schatz (D-HI) introduced the Safe Streets Act of 2014 (S. 2004), a companion bill to the House’s H.R. 2468, introduced with bipartisan support by Reps. Doris Matsui (D-CA) and David Joyce (R-OH) in June 2013. The bills would require state and metropolitan planning organizations to adopt complete streets policies, considering the safety of all users, for federally funded projects.

A supporter of the complete streets approach since he was mayor of Anchorage, Alaska, Begich says, “These policies lead to safer roads, less traffic congestion, higher property values, and healthier families.”

The Partnership for Active Transportation shows the breadth of growing interest in expanding federal support for bicycling and walking. A coalition of organizations interested in transportation, public health, economic development, and community vitality, the partnership was launched February 11 with the release of its platform on Capitol Hill. After opening remarks by Rep. Tom Petri (R-WI), chair of the subcommittee on Highways and Transit, and Eleanor Holmes Norton (D-DC), delegate to the U.S. House, leaders of the partnership explained how active transportation promotes healthy people and healthy economies.

The group’s platform, “Safe Routes to Everywhere: Building Healthy Places for Healthy People through Active Transportation Networks,” focuses on how the federal government can support expanding bicycle and walking networks, advance safe mobility for all, and encourage healthy, active lifestyles. Though one-quarter of all trips in the United States are less than a mile and 12 percent of trips are already made on foot or by bicycle, less than 1.5 percent of federal surface transportation funding goes to improving networks for bicycling and walking. Adding just another penny and half of every federal transportation dollar to improving bicycle and pedestrian networks “would transform communities across the country,” the platform asserts.

Members of the Partnership for Active Transportation include the American Academy of Pediatrics, the American Public Health Association, America Walks, the Rails-to-Trails Conservancy, and LOCUS, a national advocacy network of real estate developers and investors. ULI is a member of the partnership’s advisory committee.

“LOCUS has recognized the need for more tools at the federal level that will help to build what the market wants. Across the country, we’ve seen how trails and networks for biking and walking allow the real estate industry to sell products more quickly or to retain tenants. They are key to any successful transit-oriented development,” said Christopher Coes, managing director of LOCUS. “During these fiscally constrained times, LOCUS believes greater private/public partnerships could stretch federal dollars and unlock the economic potential of transit-oriented, walkable development.”

Action in 2014

At a time when many Americans are losing faith that Democrats and Republicans in Congress can agree on anything, the fact that walking and bicycling are garnering bipartisan support offers a feeling of hope. With MAP-21 expiring and funding running out as soon as August, Congress will have to take action in 2014. Senator Barbara Boxer (D-CA), chair of the Senate Environment and Public Works Committee, wants to do more than just kick the can down the road. She has signaled her intention, with ranking member Senator David Vitter’s (R-LA) agreement, to get a policy bill out of her committee by April. If Boxer and Vitter are successful, all eyes will then turn to the Senate Finance Committee, which is in charge of finding new revenues. Taking on the funding conundrum in an election year will be a tough hill to climb, but along the way, support can mature for other policy innovations.